Buying a Foreclosed Home

With the United State economy continuing to struggle, we're seeing home foreclosures increasing as well. In 2006, foreclosures went up 42% with a total of 1.2 million homes foreclosed. If you're in the market for a home or don't think you can afford buying a home at full price, a foreclosed home may be a perfect option for you. It's estimated that foreclosed homes sell at an average of 25% off their market value. That is thousands of dollars in savings, and possibly even over a hundred thousand dollars depending on the home's value. Obviously, you've got a lot of reasons to look into purchasing a foreclosed home, but remember that there are some risks involved as well. Since homes are generally foreclosed because the owner couldn't keep up with the payments, it's safe to assume they also couldn't afford to maintain it very well either. You may not be able to inspect a foreclosed home either, depending on the type of foreclosure sale. Here are some of the common types of home foreclosure sales and what you should know about them:

Types of Foreclosure Sales

• Auction: Buying a foreclosed home through an auction probably has the highest risk/reward ratio. You'll get the opportunity to buy a home at about a 40% discount off its market price, but you're buying it as is with no chance to inspect it. You'll also need to have the money for the home immediately, as you cannot take out a mortgage to pay for it.
• Real estate-owned: Real estate-owned refers to a situation when a lender or a bank has the title and owns a home. A real estate-owned sale typically doesn't provide as big a discount as the other types of foreclosure sales; however there is less risk involved for the buyer as you can inspect the home and get a mortgage.
• Pre-foreclosure sale: Purchasing a home right before it faces foreclosure is a fairly safe way to buy and will probably get you at least a 10% discount on the actual price. The seller is usually very interested in unloading the home as quickly as possible, so as to avoid the foreclosure. This option also gives the buyer the opportunity to inspect the property first.